Credit, collections & insolvency news

Consumer debt continues to be a pressing issue and one that isn’t going away. Our research into debt recovery processes earlier this year highlighted this, finding that more than one in three consumers (35%) have fallen into arrears due to their outgoings rising above household income – a 7% increase since we carried out similar research in 2016.

As more consumers find themselves in financial arrears, debt – and subsequently collections procedures – has become an increasingly frequent part of the customer journey, with 70% of UK consumers having experienced debt recovery procedures. Once again, this figure has risen by 7% since 2016.

While some businesses may understandably place more focus on the immediate concern of recovering money owed rather than the ongoing customer relationship, this mindset could actually cause far more damage in the long run than arrears themselves.

In fact, more than one in two customers (51%) reported they felt more negative about their service provider following poorly-handled debt collection procedures – an increase of 12% since 2016 – highlighting the possible longer term consequences for businesses that are not customer-centric during the collections process.

So given the potential impact of poor practice, how can businesses ensure that customer service remains front of mind for all customer interactions, including the management of customer arrears?

Breaking the stigma

The goal of any collections activity – whether office based or face-to-face in the field – should be to encourage customers to open up about their circumstances, ultimately leading to a balanced resolution wherein a business supports the customer out of arrears, without stretching them beyond their financial means.

Worryingly, our research found that 52% of people believe there is a negative stigma attached to asking their service provider for help when in arrears, and over a third of these (36%) feel this stigma is caused by the poor practice deployed by service providers including: aggressiveness, detachment, the promotion of fear and guilt, and lifestyle judgements.

Without advisor training and empowerment that covers more than core collections skills, it can be incredibly difficult for employees to keep an open mind and properly empathise with the wide range of circumstances that customers in arrears might be struggling with. Investment in this area is therefore crucial to impart the understanding mindset that collections staff, the wider industry and – most importantly – their customers so desperately need.

In today’s society debt is a complex topic, and therefore it’s vital for us to take into consideration the many varying reasons why a customer might not be able, or willing, to pay a bill. Assumption making, such as grouping customers into stereotypical categories, whilst a common occurrence, has a direct and dangerous influence on the way our advisors communicate with customers in arrears, and can simply exacerbate the current picture when it comes to the debt stigma.

Best practice valued by consumers, not led by procedures

The current economic backdrop of wage stagnation and rising inflation has left more people than ever feeling the pinch. In fact, 35% of people admitted that their monthly income was currently less than their outgoings, compared to 28% in 2016.

Collections teams must factor this economic hardship into how they approach collections procedures, prioritising flexibility rather than being led by rigid, internal objectives, procedures, and practices.

Many customers may now perhaps need to wait a little longer to settle their debts, due to tighter cash flow. In response to this, businesses could exercise greater flexibility in how they approach these situations, placing more of a focus on “when” a customer might be able to pay, rather than simply “why” they haven’t.

This flexibility in turn necessitates a joined-up approach between in-house teams and external collections agencies. Customer data, including payment patterns and habits, should be shared to ensure that all parties are always completely up-to-date on customers’ transient circumstances, and can then tailor the right solutions to the right customer at the right time.

Part of this joined-up approach should also involve early referrals to some of the various support schemes available to customers. Unfortunately, customer awareness of these schemes is worryingly low as it stands. This not only indicates a greater need for the collections industry to do more to highlight these vital support services, it also means that many customers enter the collections cycle before they get offered the help they need.

Indeed, our research found that at most, just under one in three consumers (32%) were aware of one of the possibility of flexible payment plans. Awareness was lower still when it came to other ways service providers can help, such as signposting customers to debt charities (28%), and priority service registers (10%).

Creating the right balance of customer service and debt skills

While top-tier debt collection skills remain a key aspect of the role, they’re not the be-all-and-end-all of what is required of collections agents in today’s market.

Collections teams will often be required to deal with challenging and difficult circumstances efficiently, while being sensitive to individual customer needs. This requires not just debt skills, but also an understanding, empathetic approach in all aspects of the customer interaction.

Unfortunately, as it stands 60% of consumers in arrears don’t feel valued as a customer through the debt collection process, up from 48% in 2016. This statistic highlights the importance of an environment that supports a customer-centric approach, infused with practices and procedures that enable, and do not block, meaningful change.

Good practice also contributes heavily to the collections process itself. Bad practice, while not the sole reason, is a contributing factor to what is known as “protest debt”, wherein a customer will deliberately withhold or default on payments as a form of protest against a company. Our research into this topic found that 8% of consumers would withhold payment because of having received poor service, inaccurate billing, or confusing charges; all issues which are within a company’s control.

It’s time to focus on the customer

While the collections industry has no doubt made great strides towards becoming customer-centric in recent years, our research highlights that consumers feel there is much more still to be done and there is still a long road ahead.

Trust in brands is waning and businesses need to work harder than ever to retain it, or earn it back. Brand and the lifetime value of customers must therefore remain front of mind during all stages of the customer journey, from acquisition through to collections.

There is an expectation among consumers for organisations to look beyond the surface, gaining a real understanding of both their real lives and the real causes of their debt, and subsequently providing the right support to resolve their arrears.

If our recent research into consumer debt has one primary takeaway, it is that there’s a clear link between how organisations treat customers in arrears, and the impact this has upon brand loyalty, advocacy and reputation, adding a financial element to the moral and regulatory requirements of getting this key area right.

Businesses that wish to minimise the impact of arrears on their organisation and their customers should really reflect on current practice and make a commitment to placing customers at the heart of their debt collection operations.